Dentons: Only consideration was whether firm breached AML regulations
Breaches of anti-money laundering (AML) rules are effectively strict liability offences and the Solicitors Regulation Authority (SRA) does not need to show severity to prove misconduct, the High Court ruled yesterday.
In an important decision, Mrs Justice Lang said the SRA only had to prove that rule breaches were serious, reprehensible and culpable where such a test was “inherent in the rule in question”.
She upheld the SRA’s appeal against the decision of the Solicitors Disciplinary Tribunal (SDT) that global giant Dentons’ breach of the AML regulations was “inadvertent” and did not amount to professional misconduct.
The tribunal found that Dentons breached regulation 14 of the Money Laundering Regulations 2007, and particularly the requirement to take adequate measures to establish the source of wealth and funds in relation to a client who was a politically exposed person.
The SRA argued that the world’s largest law firm had therefore breached principle 7 of the 2011 SRA principles – “You must comply with your legal and regulatory obligations” – and outcome 7.5 of the then code of conduct, that “you comply with legislation applicable to your business, including anti-money laundering and data protection legislation”.
But the SDT said the test was whether the breach was serious, reprehensible and culpable such that it amounted to professional misconduct, and held here that it did not.
On appeal, Lang J held that, consistent with the Divisional Court rulings in Leigh Day and Beckwith, “there is no universal requirement that breaches of the principles and the outcomes can only be established where the requirements of seriousness, culpability and reprehensible conduct are met.
“Such requirements only arise where they are inherent in the rule in question.”
Here they were not. To establish a breach of principle 7 and outcome 7.5, “the only evaluation that was required was whether or not the firm had complied with regulation 14”.
This contrasted with two of the other principles under which Dentons was charged – upholding public trust and running your business effectively. It was inherent in their “language and content” that the SDT was able to consider the additional requirement of seriousness.
The court in Leigh Day had said breaches of some rules, such as the accounts rules, could involve strict liability as they were not conduct rules; rather, they were made pursuant to specific rule-making powers concerning accounts.
Lang J said AML rules fell into the same category: “In disciplinary proceedings, the effect of a breach of regulation 14… is comparable to the effect of a breach of the accounts rules…
“Whilst regulation 14 does not create an offence of strict liability, a breach of regulation 14 is contrary to the professional standards of the profession, without the requirement of any further fault on the part of a firm, and in that sense it applies a strict liability standard.”
Dentons argued that only serious failures ought to be “stigmatised” as professional misconduct, but Lang J said SRA guidance that only serious breaches of the AML legislation would progress to disciplinary proceedings was “a safeguard against over-zealous enforcement”. Trivial breaches would not be prosecuted.
The SDT’s findings that the breach was inadvertent and committed in good faith should have been taken into account by way of mitigation when determining sanction. “They did not justify dismissal of the allegations when there was a clear breach of the MLRs 2007.”
The judge added she did not consider that the results of the SRA’s interpretation of principle 7 and outcome 7.5 to be “anomalous or unfair or disproportionate”.
“[B]ut if that is the view of the profession and the regulator, then the solution lies in an amendment to these rules which limits their application to conduct which is considered to be serious, culpable and reprehensible.”
Lang J quashed the decision and remitted it to a freshly constituted panel for re-consideration. She also awarded costs to the SRA for the appeal and of the SDT hearing, the tribunal having made no order for costs.
A Dentons spokesman said: “We are considering the Divisional Court’s decision before deciding next steps.” The SRA had no comment as it was a live matter.
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